What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-10-31 compared with 2022-08-02 · 102 added, 99 removed, 311 unchanged (39% of the section changed)

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(“Insperity,” “we,” “our,” and “us”) provides an array of human resources (“HR”) and business solutions designed to help improve business performance.

Our most comprehensive HR services offerings are provided through our professional employer organization (“PEO”) services, known as Workforce Optimization ® and Workforce Synchronization TM solutions (together, our “PEO HR Outsourcing solutions”), which we provide by entering into a co-employment relationship with our clients.

Our most comprehensive HR services offerings are provided through our professional employer organization (“PEO”) services, known as our Workforce Optimization ® and Workforce Synchronization TM solutions (together, our “PEO HR Outsourcing Solutions”), which we provide by entering into a co-employment relationship with our clients.

Our PEO HR Outsourcing Solutions encompass a broad range of HR functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services, along with our cloud-based human capital management solution, the Insperity Premier TM platform.

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and workplace safety.

In the second quarter of 2022 (“Q2 2022”), the average number of WSEEs paid per month increased 19.4% year-over-year as the Q2 2022 increase in WSEEs paid at existing clients combined with WSEEs paid from new sales and client retention all exceeded the second quarter of 2021 (“Q2 2021”) levels.

We expect the average number of paid WSEEs per month to increase between 17% and 18% in the third quarter of 2022 as compared to the third quarter of 2021, which, if achieved, would equate to the average number of paid WSEEs per month growing 3.7% to 4.6% sequentially from the second quarter of 2022.

We experienced a 0.6% decrease in the year-over-year benefits costs per covered employee during Q2 2022 as compared to Q2 2021.

In the third quarter of 2022 (“Q3 2022”), the average number of WSEEs paid per month increased 17.8% year-over-year as the Q3 2022 increase in WSEEs paid from new sales and client retention exceeded the third quarter of 2021 (“Q3 2021”) levels.

The net gain in our client base declined from Q3 2021, a period in which many clients were rehiring employees as the pandemic conditions improved.

We expect the average number of paid WSEEs per month to increase between 14.5% and 15.5% in the fourth quarter of 2022 as compared to the fourth quarter of 2021, which, if achieved, would equate to the average number of paid WSEEs per month growing 1.5% to 2.4% sequentially from the third quarter of 2022.

We experienced a 1.8% increase in the year-over-year benefits costs per covered employee during Q3 2022 as compared to Q3 2021.

During Q3 2021, we experienced a 6.0% increase in the year-over-year benefits costs per covered employee as compared to Q3 2020.

During 2022 and possibly beyond 2022, benefits costs are expected to continue to be affected by the dynamics of the pandemic, including the impact on healthcare utilization and incremental COVID-19 testing, vaccination and treatment costs.

This may result in a higher level of healthcare claims costs than our historical claim cost trends.

While we have experienced a reduced frequency in workers’ compensation claims during the COVID-19 pandemic, the COVID-19 pandemic has not had a material impact on our workers’ compensation cost estimate;

however, the ultimate impact of COVID-19 on our workers’ compensation program remains uncertain.

During the remainder of 2022 and possibly beyond 2022, benefits costs trends are expected to continue to be affected by the dynamics of the pandemic, including the impact on healthcare utilization and COVID-19 testing, vaccination and treatment costs.

This has resulted and may continue to result in a higher or more volatile level of healthcare claims costs than our historical claim cost trends.

We have experienced a reduced frequency in workers’ compensation claims since the beginning of the pandemic, driven by the trend toward hybrid and remote work.

While certain COVID-19 cases are covered under workers’ compensation, they have not had a material impact on our workers’ compensation costs.

The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the scope, duration and magnitude of the pandemic, impacts of changes in or variants of the COVID-19 virus, actions by businesses and governments in response to the pandemic, including programs designed to assist small and medium-sized businesses with the economic impact of the pandemic;

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“Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.

Insperity | 2022 Second Quarter Form 10-Q

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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2022 Highlights

Second Quarter 2022 Compared to Second Quarter 2021

Third Quarter 2022 Compared to Third Quarter 2021

• Average number of WSEEs paid per month increased 17.8%

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• Adjusted EBITDA increased 32.7% to $79.8 million

First Six Months 2022 Compared to First Six Months 2021

First Nine Months 2022 Compared to First Nine Months 2021

• Average number of WSEEs paid per month increased 18.9%

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Please read “Non-GAAP Financial Measures” for a reconciliation of adjusted EBITDA and adjusted EPS to their most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).

Insperity | 2022 Second Quarter Form 10-Q

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

(in thousands, except per share, WSEE and statistical data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 % Change 2022 2021 % Change

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(2) Revenues per WSEE per month are comprised of gross billings per WSEE per month less WSEE payroll costs per WSEE per month as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(per WSEE per month) 2022 2021 2022 2021

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Revenues $ 1,581 $ 1,565 $ 1,700 $ 1,672

Insperity | 2022 Second Quarter Form 10-Q

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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• During Q3 2022, WSEEs paid increased 17.8% compared to Q3 2021.

The number of WSEEs paid from new client sales and the net gain (loss) in our client base improved compared to Q2 2021, while client retention remained consistent with Q2 2021.

• During the first six months of 2022 (“YTD 2022”), WSEEs paid increased 19.5% compared to the first six months of 2021 (“YTD 2021”).

The number of WSEEs paid from new client sales, the net gain (loss) in our client base and client retention all improved compared to YTD 2021.

The number of WSEEs paid from new client sales and client retention improved compared to Q3 2021, while the net gain in our client base continued, although at lower levels than Q3 2021, a period when many clients were rehiring employees as the pandemic conditions improved.

• During the first nine months of 2022 (“YTD 2022”), WSEEs paid increased 18.9% compared to the first nine months of 2021 (“YTD 2021”).

The number of WSEEs paid from new client sales, the net gain in our client base and client retention all improved compared to YTD 2021.

Average WSEEs Paid and

Year-over-Year Growth Percentage

Insperity | 2022 Second Quarter Form 10-Q

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Because our monthly markup is computed in part as a percentage of payroll cost, certain revenues are also affected by the payroll cost of WSEEs, which may fluctuate based on the composition of the WSEE base, inflationary effects on wage levels and differences in the local economies of our markets.

Insperity | 2022 Second Quarter Form 10-Q

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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(in thousands)

Second Quarter 2022 Compared to Second Quarter 2021

Third Quarter 2022 Compared to Third Quarter 2021

Our revenues for Q3 2022 were $1.4 billion, an increase of 19.0%, primarily due to the following:

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• Revenues per WSEE per month increased 1.0%, or $16.

First Six Months 2022 Compared to First Six Months 2021

First Nine Months 2022 Compared to First Nine Months 2021

Our revenues for YTD 2022 were $4.4 billion, an increase of 20.8%, primarily due to the following:

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• Revenues per WSEE per month increased 1.7%, or $28.

Insperity | 2022 Second Quarter Form 10-Q

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Significant Markets

We believe the middle market sector, which we generally define as those companies with employees ranging from approximately 150 to 5,000 WSEEs, has historically been under-served by the PEO industry.

We believe the middle market sector, which we generally define as those companies with approximately 150 to 5,000 WSEEs, has historically been under-served by the PEO industry.

Currently, we have a dedicated sales management, service personnel, and consulting staff who concentrate solely on the middle market sector.

Our average number of WSEEs per month in our middle market sector increased 23.2% during Q2 2022 compared to Q2 2021, representing approximately 24.3% and 23.6% of our total average paid WSEEs during Q2 2022 and Q2 2021, respectively.

Insperity | 2022 Second Quarter Form 10-Q

Our average number of WSEEs per month in our middle market sector increased 23.3% during YTD 2022 compared to YTD 2021, representing approximately 24.6% and 23.7% of our total average paid WSEEs during YTD 2022 and YTD 2021, respectively.

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Year-over-Year Growth Percentage

Insperity | 2022 Second Quarter Form 10-Q

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Second Quarter 2022 Compared to Second Quarter 2021

Third Quarter 2022 Compared to Third Quarter 2021

Gross profit for Q3 2022 increased 23.2% to $244.6 million compared to $198.5 million in Q3 2021.

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Benefits costs

• The cost of group health insurance and related employee benefits decreased $26 per WSEE per month and decreased 0.6% on a cost per covered employee basis due primarily to lower utilization and lower COVID-19 related costs in Q2 2022 as compared to Q2 2021.

• The cost of group health insurance and related employee benefits decreased $6 per WSEE per month and increased 1.8% on a cost per covered employee basis in Q3 2022 as compared to Q3 2021.

• The percentage of WSEEs covered under our health insurance plans was 64.7% in Q3 2022 compared to 66.4% in Q3 2021.

• Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $7.2 million, or $8 per WSEE per month, in Q2 2022 compared to an increase in costs of $15.3 million, or $21 per WSEE per month, in Q2 2021.

• Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $16.6 million, or $18 per WSEE per month, in Q3 2022 compared to a decrease in costs of $3.7 million, or $5 per WSEE per month, in Q3 2021.

Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.

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Our continued discipline around our client selection, workplace safety and claims management has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.

• Workers’ compensation costs decreased 11.7%, or $6 per WSEE per month, in Q2 2022 compared to Q2 2021 on a 25.9% increase in non-bonus payroll costs.

• Workers’ compensation costs increased 0.4%, but decreased $4 on a per WSEE per month basis, in Q3 2022 compared to Q3 2021 on a 23.9% increase in non-bonus payroll costs.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.25% in Q3 2022 and 0.30% Q3 2021.

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Payroll tax costs

• Payroll taxes increased 30.5% on a 20.8% increase in payroll costs, or $51 per WSEE per month, due to the non-recurrence of an $11.2 million reduction in Q2 2021 related to final 2021 state unemployment taxes and the Q2 2021 collection of $11.3 million in federal payroll tax refunds related to prior years.

• Payroll taxes as a percentage of payroll costs increased to 6.7% in Q2 2022 compared to 6.2% Q2 2021.

First Six Months 2022 Compared to First Six Months 2021

• Payroll taxes increased 21.7% on a 19.2% increase in payroll costs, or $18 per WSEE per month.

• Payroll taxes as a percentage of payroll costs increased to 6.1% in Q3 2022 compared to 6.0% in Q3 2021.

First Nine Months 2022 Compared to First Nine Months 2021

Gross profit for YTD 2022 increased 18.6% to $770.2 million compared to $649.5 million in YTD 2021.

Gross profit per WSEE per month for YTD 2022 decreased $8 to $308 compared to $316 in YTD 2021 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Gross profit per WSEE per month for YTD 2022 decreased $1 to $294 compared to $295 in YTD 2021 due primarily to higher average pricing, offset in part by higher direct costs, as discussed below.

Our pricing objectives attempt to achieve a level of revenue per WSEE that matches or exceeds changes in primary direct costs and operating expenses.

Our revenues per WSEE per month increased $28 due to higher average pricing.

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The net increase in direct costs between YTD 2022 and YTD 2021 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $4.4 million as discussed below.

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Benefits costs

• The cost of group health insurance and related employee benefits increased $4 per WSEE per month and increased 3.1% on a cost per covered employee basis.

• The cost of group health insurance and related employee benefits remained flat on a per WSEE per month basis and increased 2.6% on a cost per covered employee basis.

• The percentage of WSEEs covered under our health insurance plans was 65.5% in YTD 2022 compared to 67.2% in YTD 2021.

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Commissions are based on new accounts sold and a percentage of revenue generated by such personnel.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Advertising — Advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets.

• General and administrative expenses — Our general and administrative expenses primarily include:

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

◦ rent expenses related to our service centers and sales offices

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◦ employee travel and training expenses

◦ technology and facility costs, including repairs, maintenance and software-as-a-service (“SaaS”) licensing costs

◦ facility costs, including repairs and maintenance

◦ technology costs, including software-as-a-service (“SaaS”) subscription costs and amortization of SaaS implementation costs

• Depreciation and amortization — Depreciation and amortization expense is primarily a function of our capital investments in corporate facilities, service centers, sales offices, software development and technology infrastructure.

Second Quarter 2022 Compared to Second Quarter 2021

Third Quarter 2022 Compared to Third Quarter 2021

The following table presents certain information related to our operating expenses:

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands, except per WSEE) 2022 2021 % Change 2022 2021 % Change

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Operating expenses for Q3 2022 increased 20.8% to $191.9 million compared to $158.9 million in Q3 2021.

Operating expenses per WSEE per month for Q2 2022 decreased 2.2% to $220 compared to $225 in Q2 2021.

• Salaries of corporate and sales staff for Q2 2022 increased 12.9% to $106.5 million, but decreased $6 on a per WSEE per month basis, compared to Q2 2021 on the 19.4% increase in WSEEs paid per month.

This increase was primarily due to a 5.2% increase in corporate headcount in Q2 2022 compared to Q2 2021, as well as higher incentive compensation accruals in Q2 2022 and increases due to staff compensation adjustments in response to current labor market dynamics and our recruiting and retention goals.

• Stock-based compensation expense for Q2 2022 increased 13.4% to $15.6 million, but decreased $1 on a per WSEE per month basis, compared to Q2 2021.

Operating expenses per WSEE per month for Q3 2022 increased 2.4% to $211 compared to $206 in Q3 2021.

• Salaries of corporate and sales staff for Q3 2022 increased 22.7% to $109.5 million, or $5 per WSEE per month, compared to Q3 2021 on the 17.8% increase in WSEEs paid per month.

This increase was primarily due to a 10.6% increase in corporate headcount in Q3 2022 compared to Q3 2021, as well as higher incentive compensation accruals in Q3 2022.

• Stock-based compensation expense for Q3 2022 increased 28.7% to $13.3 million, or $2 per WSEE per month, compared to Q3 2021.

The increase was primarily due to awards issued under our restricted stock program.

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The increase was primarily due to commissions associated with our PEO HR Outsourcing Solutions, including a new incentive program for our BPAs and sales managers.

• Advertising expense for Q2 2022 increased 38.5% to $12.4 million, or $2 per WSEE per month, compared to Q2 2021.

The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs.

Insperity | 2022 Second Quarter Form 10-Q

• General and administrative expenses for Q3 2022 increased 22.4% to $38.1 million, but remained flat on a per WSEE per month basis, compared to Q3 2021.

The increase was primarily due to increased travel and event costs, SaaS subscription costs and amortization of SaaS implementation costs.

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• General and administrative expenses for Q2 2022 increased 23.6% to $36.1 million, but remained flat on a per WSEE per month basis, compared to Q2 2021.

The increase was primarily due to increased travel and event costs.

• Depreciation and amortization expense for Q2 2022 increased 3.6% to $10.1 million, but decreased $1 on a per WSEE per month basis, compared to Q2 2021.

The increase was primarily due to capital expenditures related to software development costs.

First Six Months 2022 Compared to First Six Months 2021

Six Months Ended June 30,

First Nine Months 2022 Compared to First Nine Months 2021

The following table presents certain information related to our operating expenses:

Nine Months Ended September 30,

(in thousands, except per WSEE) 2022 2021 % Change 2022 2021 % Change

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• Salaries of corporate and sales staff for YTD 2022 increased 12.8% to $323.5 million, but decreased $7 on a per WSEE per month basis, compared to YTD 2021 on a 18.9% increase in WSEEs paid per month.

This increase was primarily due to a 3.5% increase in corporate headcount, as well as increases due to staff compensation adjustments in response to current labor market dynamics and our recruiting and retention goals.

This increase was primarily due to a 5.9% increase in corporate headcount, as well as higher incentive compensation accruals in YTD 2022.

• Stock-based compensation expense for YTD 2022 increased 7.9% to $38.8 million, but decreased $1 on a per WSEE per month basis, compared to YTD 2021.

The increase was primarily due to awards issued under our restricted stock program.

• Commissions expense for YTD 2022 increased 30.1% to $32.1 million, or $1 per WSEE per month, compared to YTD 2021.

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• Advertising expense for YTD 2022 increased 29.4% to $30.8 million, or $1 per WSEE per month, compared to YTD 2021.

The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs, partially offset by a reduction in television advertising.

The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs.

• General and administrative expenses for YTD 2022 increased 25.3% to $115.2 million, or $2 per WSEE per month, compared to YTD 2021.

The increase was primarily due to increased travel and event costs, as well as technology SaaS licensing costs related to the implementation of a CRM solution.

• Depreciation and amortization expense for YTD 2022 increased 14.0% to $20.3 million, but remained flat on a per WSEE per month basis, compared to YTD 2021.

The increase was primarily due to the completion of a new facility on our corporate campus and increased capital expenditures related to software development costs and sales office expansions.

The increase was primarily due to increased travel and event costs.

• Depreciation and amortization expense for YTD 2022 increased 9.6% to $30.4 million, but decreased $1 on a per WSEE per month basis, compared to YTD 2021.

The increase was primarily due to the completion of a new facility on our corporate campus and increased capital expenditures related to software development costs.

Other Income (Expense)

Other Income (expense) for Q3 2022 was net expense of $1.3 million compared to net expense of $1.7 million in Q3 2021, and for YTD 2022 was net expense of $4.8 million compared to net expense of $3.3 million in YTD 2021.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Income Tax Expense

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Effective income tax rate 26.7% 28.0% 27.5% 26.4%

For the six months ended June 30, 2022, our provision for income taxes differed from the U.S.

statutory rate primarily due to state income taxes, non-deductible expenses and vesting of restricted and long-term incentive stock awards.

During the first six months of 2022 and 2021, we recognized an income tax benefit of $0.2 million and $2.2 million, respectively, related to the vesting of short-term, long-term incentive, and restricted stock awards.

For the nine months ended September 30, 2022, our provision for income taxes differed from the U.S.

statutory rate primarily due to state income taxes, non-deductible expenses and vesting of restricted and long-term incentive stock

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During the first nine months of 2022 and 2021, we recognized an income tax benefit of $0.2 million and $2.2 million, respectively, related to the vesting of short-term, long-term incentive, and restricted stock awards.

Non-GAAP Financial Measures

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• non-cash stock-based compensation.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of payroll cost (GAAP) to non-bonus payroll costs (non-GAAP):

(in thousands, except per WSEE per month) Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per WSEE per month) Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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23.9 % 5.2 % 18.2 % 6.4 % 25.6 % 5.7 % 12.3 % 6.7 %

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Cash, cash equivalents and marketable securities $ 596,636 $ 607,603

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Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except per WSEE per month) 2022 2021 2022 2021

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Interest expense 4,082 4 1,963 3 8,698 3 5,537 3

Amortization of SaaS implementation costs 948 1 — — 948 — — —

Depreciation and amortization

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32.7 % 12.8 % 4.5 % (6.0) % 21.8 % 2.0 % (10.5) % (15.0) %

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

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% Change period over period 36.3 % (1.7) % 20.2 % (13.0) %

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(amounts per share) 2022 2021 2022 2021

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Longer-term projects, large stock repurchases or significant acquisitions may be financed with public or private debt or equity.

We have a revolving credit facility (“Facility”) with a syndicate of financial institutions, which we amended in June 2022 to, among other things, increase our borrowing capacity from $500 million to $650 million.

We have a revolving credit facility (“Facility”) with a syndicate of financial institutions with a borrowing capacity of $650 million.

The Facility is available for working capital and general corporate purposes, including acquisitions and stock repurchases.

We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources.

We had $541.7 million in cash, cash equivalents and marketable securities at June 30, 2022, of which approximately $258.2 million was payable in early July 2022 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $116.6 million represented client prepayments that were payable in July 2022.

At June 30, 2022, we had working capital of $164.0 million compared to $116.3 million at December 31, 2021.

We had $596.6 million in cash, cash equivalents and marketable securities at September 30, 2022, of which approximately $321.9 million was payable in early October 2022 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $35.8 million represented client prepayments that were payable in October 2022.

At September 30, 2022, we had working capital of $167.8 million compared to $116.3 million at December 31, 2021.

We currently believe that our cash on hand, marketable securities, cash flows from operations and availability under the Facility will be adequate to meet our liquidity requirements for the remainder of 2022.

We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs, which we continually monitor in light of our strategic goals and the significant uncertainty related to the ongoing impacts of the COVID-19 pandemic.

As of June 30, 2022, we had an outstanding letter of credit and borrowings totaling $370.4 million under the Facility.

We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs, which we continually monitor in light of our strategic goals and the uncertainty related to the ongoing impacts of the COVID-19 pandemic.

As of September 30, 2022, we had an outstanding letter of credit and borrowings totaling $370.4 million under the Facility.

Please read Note 5 to the Consolidated Financial Statements, “Long-Term Debt,” for additional information.

Insperity | 2022 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash Flows from Operating Activities

Net cash provided by operating activities in the first six months of 2022 was $22.8 million.

Net cash provided by operating activities in the first nine months of 2022 was $122.0 million.

Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients.

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therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday.

In the period ended June 30, 2022, the last business day of the reporting period was a Thursday, client prepayments were $116.6 million and employment taxes and other deductions were $258.2 million.

In the period ended June 30, 2021, the last business day of the reporting period was a Wednesday, client prepayments were $50.4 million and employment taxes and other deductions were $226.7 million.

In the period ended September 30, 2022, the last business day of the reporting period was a Friday, client prepayments were $35.8 million and employment taxes and other deductions were $321.9 million.

In the period ended September 30, 2021, the

Insperity | 2022 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

last business day of the reporting period was a Thursday, client prepayments were $74.6 million and employment taxes and other deductions were $198.4 million.

• Workers’ compensation plan funding – During YTD 2022, we received $30.2 million for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital.

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In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows.

As of June 30, 2022, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $41.8 million surplus, $32.8 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Condensed Consolidated Balance Sheets.

The premiums, including an additional quarterly premium, owed to United at June 30, 2022, were $55.9 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheets.

As of September 30, 2022, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $25.2 million surplus, $16.2 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Condensed Consolidated Balance Sheets.

The premiums, including an additional quarterly premium, owed to United at September 30, 2022, were $57.6 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheets.

• Operating results – Our adjusted net income has a significant impact on our operating cash flows.

Our adjusted net income increased 14.9% to $121.9 million in the first six months ended June 30, 2022, compared to $106.1 million in the first six months ended June 30, 2021.

Please read “Results of Operations – First Six Months 2022 Compared to First Six Months 2021.”

Our adjusted net income increased 20.2% to $169.3 million in the first nine months ended September 30, 2022, compared to $140.9 million in the first nine months ended September 30, 2021.

Please read “Results of Operations – First Nine Months 2022 Compared to First Nine Months 2021.”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $8.6 million for the six months ended June 30, 2022, primarily due to property and equipment purchases of $9.0 million.

Net cash flows used in investing activities were $19.9 million for the nine months ended September 30, 2022, primarily due to property and equipment purchases of $16.4 million.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $91.6 million for the six months ended June 30, 2022.

Net cash flows used in financing activities were $123.4 million for the nine months ended September 30, 2022.

We paid $56.9 million in dividends and repurchased or withheld $63.4 million in stock.

Insperity | 2022 Second Quarter Form 10-Q

Insperity | 2022 Third Quarter Form 10-Q

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis